The surprise hostility from the Confederation of British Industry and Institute of Directors adds to mounting pressure on the Chancellor, Kenneth Clarke, from MPs, lawyers and accountants to re-think the tax move.
On Monday, both the CBI and the IoD fully supported the Greenbury report on top pay, whose recommendation that options should in future be subject to income tax was immediately acted upon by Mr Clarke.
Yesterday, Sir Richard Greenbury, chairman of the pay committee and a leading light of the CBI, met a hostile reception on the tax issue when he addressed 150 members at the group's monthly council meeting.
Shortly afterwards, Tim Melville-Ross, director general of the IoD, bowed to grassroots pressure from members and wrote to the Chancellor asking for a re-think.
Sir Richard made no secret of his own surprise that the Government had acted so precipitately and without consultation on the method of implementation, informing him only 48 hours before.
The rebellion led the CBI to ask its taxation committee to look at the issue as quickly as possible. It is expected to put alternative proposals to the Chancellor to ease the impact of abolition on middle managers and other staff with share options.
Sir Bryan Nicholson, president of the CBI, said the council had backed all Sir Richard's report on pay, with the exception of the proposal to end capital gains tax treatment of share options. "A band of members were concerned at the speed and breadth of the coverage of the action the Chancellor took on Monday," he said.
Sir Bryan added that as well as the comments of those who had spoken against the tax change "you can tell from the body language the general feeling was the issue should be looked at and reflected upon and that is what we will do". Asked whether Mr Clarke's action was hasty and ill- judged, he said it was premature to say that.
One proposal the CBI is studying is whether there should be a threshold of perhaps pounds 20,000 a year option profits, below which the capital gains tax treatment should continue.
Other suggestions during the council meeting included a sliding scale at which CGT would bite. CBI officials think this unworkable.
In his letter, which was due to be on the Chancellor's desk this morning, Mr Melville-Ross writes about his deep concern at the tax changes.
He says the Government's immediate response to publication of the report on Monday was a knee-jerk reaction, and went further than the Greenbury Committee recommended.
Mr Melville-Ross points to paragraphs in the report which, he believes, show that the tax changes were not intended to apply across the board.
And he told the Independent last night that it was evident to most people that the Greenbury Committee was set up to deal with listed companies, not the whole business sector.
"I have told the Chancellor it would have been more sensible to have a period to discuss the report's recommendations, not give a knee-jerk response," he said. "The IoD would like to see a revision. I hope we can have considered discussion of this by the time of the next Budget."
Mr Melville-Ross, a member of the Greenbury Committee, wants Mr Clarke to "ring-fence" the thousands of private companies which will be affected by the changes.
He warned that introducing the Greenbury proposals throughout UK business could undermine the relationship between shareholders and directors. "It would hit the growth of shareholder democracy."
Many IoD members feel they are being made to pay for the excesses of a few directors. Chris Beale, former chairman of the Hampshire and Isle of Wight IoD, said: "There is a lot of disaffection that the side has been let down by a small coterie."
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